(UPDATE) Inflation eases in Oct on lower oil, food prices
JUDITH BALEA, abs-cbnNEWS.com | 11/05/2008 11:41 AM
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Consumer prices eased for the second straight month in October, after hitting a 17-year high, as oil and rice prices continued to fall, the government said Wednesday.
The National Statistics Office said inflation rate in October slowed down to 11.2 percent from the revised 11.8 percent in September and 12.5 percent in August. The government revised the September inflation figure from the original 11.9 percent to reflect the correct prices of some items in the basket of commodities.
October's inflation rate was below the central bank's forecast range of 11.3 to 12.1 percent.
Although headline inflation has moderated, core inflation, which strips out some volatile food and energy items, continued to go up at a rate of 7.8 percent in October from 7.5 percent previously. The Bangko Sentral ng Pilipinas (BSP) had explained this is indicative of the earlier buildup in demand pressures, even if there was little evidence of second-round effects in September, given the absence of new petitions for wage and transport fare hikes, and easing inflation expectations.
Radhika Rao, an economist at IDEAglobal, said that the jump in the core reading will be hard to ignore. "The central bank, we reckon, has been worried on this count, as the weaker peso feeds through pipeline pressures--in lagged fashion--which might keep core readings buoyant for few more months."
The rise in food costs, in general, was slower at 15.6 percent in October, compared to 17 percent in the month before as the harvest season for rice brought sufficient supply in the markets and the supply of corn also continued to increase.
Meanwhile, successive rollbacks in the prices of gasoline and diesel in the global markets pulled down their prices domestically.
The BSP expects inflation to surpass government targets for this year and the next before reaching a "target-consistent path by 2010."
The government earlier said inflation would likely fall within the range of 9-11 percent this year and 6-8 percent in 2009 as upside risks, particularly the continued volatility in oil prices, remain.
The BSP, for its part, said it would continue to watch over price developments and undertake necessary policy actions.
With slowing inflation and the orchestrated rate cuts by major central banks around the world, some economists expect the BSP to cut its key interest rates at its next policy meeting on November 20. Although the central bank earlier indicated that its current monetary policy stance was already appropriate.
"We still believe that the central bank would deliver a 25 basis point cut at the November meeting directed at alleviating growth concerns and stress in financial markets," said Rao.
Nicholas Bibby of Barclays Capital said they are also looking at a 25 basis point reduction. "For monetary policy I think the central bank has been signalling that it will be easing down the line. One of the things it's been looking for is the moderation coming through with inflation," he said.
Last month, the central bank kept its benchmark interest rates steady at 6.0 percent after consecutive hikes totaling 100 basis points.
Inflation forecast up
Meanwhile, London-based think tank Economist Intelligence Unit said inflation rate in the Philippines could settle at 9.7 percent in 2008 and 7 percent in 2009 from an actual inflation rate of 2.6 percent last year.
It noted that rising risk aversion among global investors, coupled with rapid inflation and a slowing economy, would lead to the depreciation of the peso.
A weaker peso makes the cost of imported commodities such as oil, fertilizer, rice and wheat more expensive in the domestic market.
